Compute the consumers lifetime wealth

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A consumer’s income in the current period is y=100, and income in the future period is y’=120. He or she pays lump-sum taxes t=20 in the current period and t’=10 in the future period. The real interest rate is 0.1 or 10% per period.

1. Compute the consumer’s lifetime wealth.

2. Graph the consumer’s intertemporal lifetime budget constraint

3. Draw an indifference curve that shows the consumer is a borrower in the current period. Graphically show equilibrium c, c’, s, and s(1+r).

Reference no: EM13984574

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